Q: My lender has contacted me and told me that the interest rate on my investment loan is going up, and there hasn’t even been a cash rate increase! Why is this happening, it doesn’t seem right?
A: A few weeks ago I answered a question about changes to investment lending At the time, the changes were largely impacting new investors rather than current investors.
However since then, Australia’s banking regulator, APRA, has told our biggest banks – ANZ, CBA, NAB, Westpac and Macquarie – that they need to hold more ‘capital’, or reserves.
This was a recommendation that came out of the Financial System Inquiry several months ago, and there are a few reasons for this. Partly, it’s to help protect these big banks against property market drops. Another reason is to help level the playing field for large and small lenders.
This might be too much detail, but to explain, these bigger banks have a risk weighting of 16% against their home loans debts, however they have now been told to increase this to 25%. Smaller lenders currently have 35%, and they will always typically have to hold more capital than larger banks because they’re smaller size means they may be more susceptible to market movements.
It’s because of these reasons that the big four have now increased interest rates on their customers’ variable rate investor loans like you have experienced. One lender has also announced that they will be increasing interest rates on all existing variable rate interest only loans, even for owner occupiers.
It’s not only these biggest banks that are announcing rate increases either, other lenders are following suit too.
If you have a fixed rate loan then an increase can’t be made until the fixed rate period comes to an end, so you are protected against any rate change for the fixed loan term.
Every lender is responding differently to these restrictions, and new changes continue to be announced every day.
If you have more questions about the changes or want to understand how you may or may not be impacted, I’d suggest you contact us or your lender.